The ESG reporting landscape in India has gradually evolved, from the National Voluntary Guidelines on the Social, Environmental, and Economic Responsibilities of Business introduced in 2011 to updated Business Responsibility and Sustainability Report (“BRSR”) reporting including BRSR Core, which requires third-party assurance.
Legal Framework for ESG Reporting
There is no single legislation addressing all ESG-related matters – these are spread over multiple laws (and each theme of ESG, e.g. environment, involves several laws and regulations). In addition to setting out relevant regulatory requirements, these laws generally involve reporting requirements to government authorities (but no public reporting). However, the (erstwhile) Companies Act, 1956 and the (current) Companies Act, 2013 require disclosure in the board’s report (which is a public document) on certain matters involving conservation of energy and technology absorption. Additionally, the Companies Act, 2013 and rules thereunder also require disclosures in relation to CSR (corporate social responsibility) activities. However, the primary legislation for integrated ESG reporting in India is the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 and circulars issued thereunder (and is hence applicable only to listed companies).
ESG Reporting: Recent changes
i) BRSR Core: BRSR Core contains a limited set of a total of nine key performance indicators covering each of the E, S and G areas, for which listed entities are required to obtain reasonable (external) assurance to enhance its reliability and mitigate greenwashing. It is applicable from FY 2023-24 to the top 150 listed entities based on market capitalisation, and has been gradually extended to the top 1,000 listed entities by FY 2026–27. Further, ESG Rating Providers are required to offer a separate category of ESG Rating termed as ‘Core ESG Rating’, which will be based on the third-party assured or audited data disclosed by the company.
ii) Disclosures for value chain: These disclosures are required to be made by the listed company as per BRSR Core, as part of its annual report. For this purpose, value chain is defined to encompass the top upstream and downstream partners of a listed entity, cumulatively comprising 75% of its purchases / sales (by value) respectively. This requirement is applicable to the top 250 listed entities (by market capitalization) on a comply-or-explain basis from FY 2024-25, and limited assurance of the above is applicable on a comply-or-explain basis from FY 2025-26.
iii) Regulating ESG Rating Providers; Parivartan score: SEBI has introduced detailed guidelines for ESG Rating Providers, and is regulating them under the SEBI (Credit Rating Agencies) Regulations, 1999. In addition to ESG Rating and Core ESG Rating, ESG Rating Providers are required to offer a transition (or parivartan) score (which reflects the incremental changes that the company has made in its transition story over recent years or concrete plans/targets to address the risk and opportunities involved in transitioning to more sustainable operations, rather than scoring them only on their current profile).
ESG Reporting – key challenges, and way forward
There are several challenges associated with the enhanced ESG reporting requirements. These include: (i) lack of clarity on scope and extent of disclosures required in certain areas; (ii) lack of qualified personnel, who are well-versed with the reporting framework; and (iii) preparedness of the value chain of listed companies for the disclosures.
The current reporting regime is largely a function of requirements prescribed by SEBI for larger listed companies. Going forward, factors that could influence the ESG reporting regime include evolving regulatory requirements (both proactive and reactive), (institutional) investor requirements and evolving societal expectations.